Executive Summary: Key Legal and Evidentiary Issues

• On February 2, 2021, Investissements EPAC inc. granted a hypothec over three Montreal properties to secure a loan of up to $1,500,000 from 6090621 Canada inc., of which only $500,000 was disbursed.
• The central issue was whether EPAC's payment of $663,662.19 into trust on April 28, 2026 was sufficient to discharge its hypothecary debt and defeat the taking-in-payment proceeding.
• Disputed amounts included $451,978.69 for professional invoices paid by 609 in connection with the development project, which the court found were not covered by the hypothec.
• The additional indemnity of 25% claimed by 609 was found to be legally impermissible before judgment under Articles 1619 and 2762 of the Civil Code of Québec.
• Both parties' claims for procedural abuse or serious irregularities in the conduct of the proceedings were dismissed.
• Each party was ordered to bear its own costs.

Facts of the case

On February 2, 2021, Investissements EPAC inc. ("EPAC") granted a hypothec over three immovable properties located in Montreal in favor of 6090621 Canada inc. ("609"), securing a loan of up to $1,500,000 at an interest rate of 6%. The loan arose in the context of a real estate development project involving the mortgaged lots, which was to be carried out through a limited partnership to be created by the parties, with profits to be shared equally. The loan proceeds were specifically intended to pay off creditors holding prior-ranking charges. Due to difficulties between the parties, only $500,000 of the maximum loan amount was ultimately disbursed.

On February 7, 2022, alleging that EPAC was in default under the hypothec, 609 served a prior notice of exercise of a hypothecary remedy, opting for taking in payment of the properties. In that notice, 609 claimed a total of $1,178,929.53, broken down as follows: $512,625.63 representing the $500,000 principal plus accrued interest; $430,518 for invoices paid by 609 in connection with the development project; and $235,785.91 as a 25% additional indemnity calculated on the combined total of the first two amounts, as provided under the hypothecary deed. EPAC acknowledged owing the $500,000 principal and accrued interest but disputed both the invoice amount and the additional indemnity.

In early April 2026, the parties attempted to settle. 609's counsel sent a letter stating a total owing of $1,459,897.02, comprising the $500,000 principal, $158,361.64 in interest, a supplementary indemnity of $51,522.60, $451,978.69 for invoices, $108,134.48 in interest on those invoices, and $189,899.61 in extrajudicial legal fees. On April 28, 2026 — two days before the scheduled hearing — EPAC transferred $663,662.19 into the trust account of 609's counsel, representing, in EPAC's view, the full amount owed under the hypothec: the outstanding principal, accrued interest (excluding the additional indemnity), and $3,500 to cover court costs. EPAC took the position that this payment was sufficient to discharge its debt and defeat the taking-in-payment proceeding.

Contractual clauses and statutory provisions at issue

The hypothecary deed contained "Charges and conditions," of which two clauses were invoked by 609. Clause 4 was argued to cover the reimbursement of the professional invoices as expenses incurred in administering the hypothecated properties. Clause 14 was also invoked, on the basis that the invoices related to debts "secured on the immoveables." The deed also provided for a 25% additional indemnity on all amounts due in the event of enforcement of the hypothecary remedy.

On the statutory side, Article 2762 of the Civil Code of Québec — a public order provision — limits a hypothecary creditor exercising a remedy to claiming only accrued interest and costs incurred, and no other indemnity. Article 1619 C.c.Q. governs the additional indemnity, which is awarded by the court at the time of judgment. Section 8 of the federal Interest Act (RSC 1985, c. I-15), which prohibits penalties that have the effect of increasing the conventional interest rate in a mortgage on immovable property, was also raised in relation to the 25% indemnity.

Reasoning and analysis

On the question of the invoices, the court held that the $451,978.69 in professional fees paid by 609 in connection with the development project was not covered by the hypothec. The hypothec was specifically intended to guarantee a loan for the purpose of discharging creditors with prior-ranking charges — not to secure any other obligations. The court found the testimony of 609's representative on this point vague and inconclusive. EPAC's representative testified that the invoices — approximately 95% of which were incurred before the hypothecary deed was signed — were never discussed between the parties at the time of signing. The court observed that if reimbursement of those invoices was meant to be secured by the hypothec, it would have been straightforward to include a clear provision to that effect, which the deed did not contain.

Regarding the contractual clauses, the court dismissed both of 609's arguments. Clause 4 could not apply because the expenses predated the hypothec and were not incurred in administering the hypothecated property in the context of the hypothecary proceeding. Clause 14 was equally inapplicable because the evidence did not establish that the invoices were related to debts secured on the immoveables. The court concluded that 609 had not discharged its burden of proving that the invoice payments were advances covered by the hypothecary guarantee.

On the additional indemnity, the court agreed with EPAC that no such indemnity was owed if payment occurred before judgment. Under Article 2762 C.c.Q., a hypothecary creditor may not claim any indemnity other than accrued interest and costs. The additional indemnity, by its nature, compensates for prejudice arising from late payment and the often-below-market statutory interest rate; it is awarded by the court at the time of rendering judgment, as provided in Article 1619 C.c.Q. The court noted that 609's own counsel acknowledged at the hearing that no precedent existed allowing a hypothecary creditor to obtain the additional indemnity before judgment. The 25% indemnity claimed in 2022 was also acknowledged by 609's counsel to be illegal — a concession the court accepted without further analysis.

On the cross-claims for procedural abuse, the court dismissed both. It found that 609 was poorly positioned to complain of delay, having itself claimed amounts not owed under the hypothec or not permitted by law — including the invoice amount, the 25% indemnity, and extrajudicial fees exceeding $189,000 in contravention of Article 2762, paragraph 2, C.c.Q. Conversely, EPAC's request to join the present proceedings with a related case was not found to be manifestly unfounded or frivolous, given the evident links between the two files, even though joinder was refused. The court noted, however, that EPAC had also waited until the very last moment — April 28, 2026 — to make any offer of payment, when it could have done so much earlier, at which point 609 would have been required to accept partial payment under Article 1561, paragraph 2, C.c.Q.

Ruling and overall outcome

The court ruled in favor of EPAC. It declared that EPAC's payment of $663,662.19 into the trust account of 609's counsel was sufficient to discharge its obligations under the hypothecary deed. As a consequence, the court dismissed 609's application for forced surrender and for an order of taking in payment. It further ordered the cancellation of the hypothec published in the land register of the Montreal registration division under number 27 002 485, as well as the cancellation of the related prior notice of exercise of the hypothecary remedy. No costs were awarded to either party, with each bearing its own legal expenses.